MO utilities, co-ops say cap-and-trade bill too costly

Missouri residents can expect their electric bills to jump 12 percent to 50 percent by 2012 if the U.S. Senate passes a bill that caps carbon dioxide emissions and establishes a system for trading and buying emissions allowances, according to a study by the state's utilities.

And by 2020, the study suggests, average electric rates in Missouri could soar from 25 percent to a staggering 77 percent if a cap-and-trade system forces utilities to switch to natural gas from coal - the primary energy source for the Show-Me State and several others, including Ohio, Iowa and Utah. Missouri generates some 82 percent of its electricity by burning coal.

The Missouri Public Utilities Alliance and City Utilities of Springfield spearheaded the cost analysis after the U.S. House of Representatives narrowly passed House Resolution 2454 - also known as the American Clean Energy and Security Act or Waxman-Markey bill - in late June, said Floyd Gilzow, MPUA director of public affairs.

"The danger that we all saw was that there were lots of numbers that were being kicked around from lots of different sources," Gilzow said. "We decided it would be better if all the utilities got together and got some common assumptions and said, 'Here's how we think this might work.'"

Missouri's three investor-owned utilities - Empire District Electric Co., Ameren Corp. and Kansas City Power & Light Co. - and the Association of Missouri Electric Cooperatives also participated in the study, which appears to be the only one of its kind in the country, Gilzow said.

Letters highlighting the study's findings and recommendations were sent to every federal lawmaker and signed by the respective executives, including CU General Manager John Twitty and James Jura, CEO and general manager of Springfield-based Associated Electric Cooperative Inc. Both Twitty and Jura referred questions to MPUA and AMEC representatives.

"I think we have given legislators a clear set of figures that all the utilities agree to," Gilzow said.

A moving target

Gilzow acknowledged that the study's conclusions are far from precise, but he said analysts with the various utilities did their best with the information available. He noted that specifics of the proposed cap-and-trade system have been hard to pin down.

"Averages hide a lot of realities," Gilzow said. "There's an old saying that if you sleep with your feet in the oven and your head in a freezer, you're - on average - comfortable. And (the U.S. Environmental Protection Agency) has been saying, 'On average, this is going to raise rates maybe 50 cents a day.' Maybe on average that's the way it mathematically works out, but that ignores the fact that there are wide variances across the United States. There are a number of states, including Missouri, where utilities are going to have to go out and buy these allowances."

According to the study, Missouri utilities will likely need to buy about 40 percent of their allowances to offset their carbon emissions for 2012, based on an allocation formula in the legislation. Each allowance permits a utility to emit 1 ton of carbon dioxide, but the individual cost of those allowances is unknown, Gilzow said.

"There's no floor on the price; there's no cap on the price," he said. "It's purely based on supply and demand."

In Europe, the five-year-old cap-and-trade system has experienced significant price fluctuations, and the cost of individual allowances has ranged from 6 to 30, or about $10 to $50, Gilzow said.

AMEC Executive Director Barry Hart said the allowance formula rewards utilities serving more consumers in states that use more renewable energy, but it punishes coal-dependent states. He also noted that utilities and co-ops in the Midwest are staring down a cap-and-trade system without a proven technology in place for reducing carbon emissions, although CU is studying the feasibility of sequestering carbon dioxide beneath the earth's surface.

Gary Pendergrass, CU's manager of environmental compliance, said preliminary findings look promising.

"With the data we have in hand, I'm encouraged this will work here," he said. "Other power plant sites in Missouri would be able to implement this at their sites."

CU will soon issue a request for proposals to drill an exploratory well to study the properties of underground reservoirs and minerals at a depth of about 2,000 feet. The next step will be an injection well that will feed food-grade CO2 into the geological basins, Pendergrass said.

Senate showdown?

Neither of Missouri's senators appears ready to support the Waxman-Markey bill, which needs 60 votes to gain approval.

Republican Kit Bond has repeatedly blasted the legislation and labeled the cap-and-trade system an "energy tax." Bond serves on the Senate Environment and Public Works Committee, which will review the bill before it is debated on the floor. A committee hearing hasn't yet been scheduled.

"This report confirms our fear that the Waxman-Markey cap-and-trade bill will hurt Missouri families and farmers with higher energy bills," Bond said in an e-mailed statement to Springfield Business Journal. "Instead of killing jobs and raising energy taxes with a cap-and-tax bill that will cut family budgets and hurt farmers, we should invest in clean energy alternatives."

In a conference call last week, Bond stated his support for nuclear energy as well as renewable fuels, such as biodiesel and ethanol.

Democrat Claire McCaskill also has expressed reservations about the bill's effects on Missouri's residential and commercial ratepayers.

"Sen. McCaskill recognizes that climate change is a serious problem that must be addressed, but she won't support a bill that unfairly passes the costs of fixing it to Missourians and their businesses," McCaskill spokeswoman Maria Speiser said in an e-mail. "People in Missouri have no choice but to be dependent on coal-based utility companies."

In 2011, CU customers are facing an electric rate increase tied to construction of the new Southwest Power Station 2 followed by staggered rate increases of 2 percent or more in 2012, 2013 and 2014. Electric co-ops have seen their costs of wholesale electricity rise about 40 percent on average during the past five years, AMEC's Hart said.

The proposed legislation also might adversely affect Missouri's economic development efforts, Hart said, adding that high electric rates could discourage new business and run off existing companies.

"There needs to be some kind of an off-ramp where Missouri businesses aren't put at a competitive disadvantage," he said. "Most of your jobs created in Missouri are from existing business. ... Why would we hammer those existing businesses that are going to be creating all the jobs? This is another time bomb that they're placing on businesses, and when that bomb goes off, it might be the final nail in the coffin."

If the bill does move forward, Missouri's utilities and electric co-ops have asked senators to consider some suggested revisions. They include increasing the number of emissions allowances available to utilities to mitigate the law's initial blow, extending the two-year window before EPA enforcement begins, and capping the price of allowances to guard against spikes caused by shortages or speculation.

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